(Kitco News) – Falling interest rates and consistent central bank demand could sustain gold’s rally through 2025, according to Lina Thomas, commodities strategist at Goldman Sachs Research.
“Since 2022, gold prices have surged 40% even as US interest rates were climbing,” Thomas said in an update published Monday. “That is very strange. Typically, higher interest rates make gold less attractive – because gold doesn’t pay any interest, unlike bonds.”
But this relationship changed dramatically in early 2022, Thomas said, after the United States and other Western countries responded to Russia’s invasion of Ukraine by freezing (and in some cases, seizing) Russia’s central bank assets.
“That was a wake-up call for central banks worldwide,” she said. “They began to diversify their reserves away from the dollar and into an asset no one can freeze – and that is gold.”
As a result, Thomas said that central bank buying propped up gold prices even as investors sought higher yields from other assets.
“We don’t see central bank demand slowing down,” she added. “And with the Fed cutting rates, investors are jumping back in, too.”
On Nov. 18, commodity analysts at Goldman Sachs reiterated their stance that gold prices will hit $3,000 per ounce by the end of 2025.
While Donald Trump’s election victory and a Republican Party sweep through Congress triggered some selling and profit-taking in the gold market, the investment bank noted that the factors driving gold to record highs have not disappeared.
"The structural driver of the forecast is higher demand from central banks, while a cyclical lift would come from flows to exchange-traded funds as the Federal Reserve cuts," the analysts said in a note.
Although central bank gold purchases slowed in the third quarter, analysts expect demand to remain consistent for the foreseeable future as nations continue to diversify their official reserves away from the U.S. dollar.
Goldman Sachs also noted that the U.S. government’s growing debt could prompt more central banks to increase their gold holdings.
Trump’s election win has pushed bond yields and the U.S. dollar higher, creating significant headwinds for gold. Traders and investors are focused on the President-elect’s proposed “America-First” policies, but Goldman Sachs said these policies could also support gold prices through 2025.
"An unprecedented escalation of trade tensions could revive speculative positioning in gold," the analysts said.
